Prudential PLC - CGS-CIMB Research 2022-09-05: 1H22 NDR Takeaway ~ Diversification Matters

• We hosted Prudential Plc (SGX:K6S)’s senior management — Mr Mark FitzPatrick, CEO; Mr James Turner, CFO and Ms Lilian Ng, Managing Director, Strategic Business Group of Greater China — for a post-1H22 results investor NDR.
• We were particularly impressed with how advantageous its diversified distribution channel mix was in the current environment, with superior new business profit (NBP) performance delivered in 1H22.
• On a constant exchange rate basis (CER) in 1H22, Prudential's NBP fell by only 5% y-o-y, better than its regional peers (Manulife Asia: -23%; AIA: 15% y-o-y), with Prudential’s bancassurance NBP up 31% y-o-y.

Bancassurance strategy: Different from other insurers in Asia

• Prudential's bancassurance outperformed agency NBP across multiple markets, including mainland China, Hongkong, Singapore, Thailand and India. Within China, bancassurance and its geographically diversified presence helped result in a muted 1H22 impact from COVID-19 lockdowns.
• This is because Prudential’s bancassurance 1H22 health and protection (H&P) NBP mix was 47%, with a high mix of regular premiums. Within China, its 1H22 bancassurance NBP margin was 41%, higher than other China insurers.
• Prudential has the largest bancassurance presence across Asia and the know-how to successfully run bancassurance, in our view. With 22 new bank partnerships signed in 1H22, Prudential’s total new bancassurance partnerships across Asia is >170, with 32 being exclusive.

Possibility of quick ramp-up once Macau license is granted

• This is because as it is already discussing with some of its bank partners that have Macau branches. A lot of the infrastructure and operations will also be done from Hongkong. The mainland Chinese visitor (MCV) business is also an opportunity as pre-2019, about 25% came from Guangdong, with about half coming from the eastern coastal regions.

Reiterate ADD rating on Prudential with target price unchanged at HK$144.7

• We value Prudential on an SOP basis, via a blend of P/EV & P/BV GGM for its subsidiaries.
• Potential near-term catalysts: Macau license approval and NBP recovery.
• Downside risks: COVID-19 outbreaks, a global recession and lower investment yields.